The financial crisis of 2008, uncertainty, and change in plans

[NW-Bound]

Yes, it is easy to forget the effect of inflation. I just looked it up to find that the inflation from Oct 2007 to Feb 2012 is 9%!

So, although in nominal amount I had more, but taken inflation into account, I am still below my previous high of Oct 07.

Because I still had the habit of looking solely at my total like when I was still in accumulation mode, I do not know my net withdrawal since Oct 07, other than that I have had a net outflow as I overspent my part-time income in the past 5 years. So, considering that, I don't do too bad.

Back on the OP's linked article and his question as to how this Great Recession has affected our plan, the following is my perspective.

I did not plan to quit working completely until my children got out of college. If I were, the higher expenses in the past few years would cause me some worries, no doubt about that. So, having a part-time income in those bad years really helped calm my nerves.

Secondly, now that the college cost is over, I have the luxury of completely stop working any time I like. But the uncertainty of the days ahead means that I should be planning on no more than 3.5% WR. The SS, when I become eligible, will be my safety cushion, even if it might be cut back from currently promised level.

Thirdly, I am still maintaining a 70% equity AA, and with a high foreign stock component. I was not sure what to do before, but this AA is now my firm resolution. I may shift from cyclical stocks into defensive stocks, depending on my crystal ball, but I do not see myself abandoning equities.

Fourthly, if my stash gets decimated again, I am fully prepared to reduce my standard of living in order to lower the WR. Most of what we really spent on are "wants", not "needs". I will keep a closer look on my expenses, in order to be "mobile and hostile", like unclemick likes to say. I do not need to spend that much money to be happy, but in the best case, if the money is there, I will think of something to do with it.

In short, I never had a plan before, other than trying to be LBYM. Now, I think I do.

 

[Lsbcal]

Yes, it is easy to forget the effect of inflation. I just looked it up to find that the inflation from Oct 2007 to Feb 2012 is 9%!

So, although in nominal amount I had more, but taken inflation into account, I am still below my previous high of Oct 07.
...

I key on one number: the percent above or below my inflation adjusted starting portfolio (liquid assets) value. When it is down a lot I worry and tell DW to spend less (she still goes to Macy's). When it is up I worry a little that it might go back down eventually and should I spend more or not? DW just keeps going to Macy's.

 

[FIREd]

So, I could have done a LOT better if I just stayed in after the bottom in March. Looks like some people did, like our young friend FIREd, and they came out doing very well.

I did. But back in 2008 young FIREd had:

1) a lot less to lose than most of you.
2) an income high enough to replace half of his portfolio under 2 years.
3) seemingly many years to go before being able to FIRE.


Would I be so brazen today? Probably not. My net worth is several times higher than what it was in 2008. I'll have a lot more to lose next time, which probably accounts for my somewhat conservative AA:

1/3 cash, CDs and i-bonds
1/3 equities
1/3 real estate

Roughly.

 

[KMyer]

The Financial Crisis of 2008 turned out to be a blessing in disguise since I was able to continue investing agressively in equities the whole way through the crisis. It sure didn't feel that way at the end of 2008 when I saw that my E-Trade portfolio had a negative investment return of 65% for that year. It made me question why I was investing and not just spending the money.

Fortunately the financial stocks and auto stocks that hurt me in 2008 helped my portfolio have a 99% investment rate of return in 2009. It has been a wild roller coaster ride but it has all turned out ok since I am still relatively young, working. and investing. I've had an average annual rate of return of 11.92% since 01/01/2008 per Quicken. I am still 100% in equities but have definitely diversified my holdings into other industries.

 

[Danmar]

OK I think I must have one of he most extreme stories. Retired 2006 and more than 100% in equities if you ignore my large pension.Uncashed in the money employee options represented about half my non- real estate, non pension assets. These went to zero in early 2009. In total, my investable assets were down by 75%. Suddenly retirement looked much different than planned. There was nothing I could do but wait it out. Tough emotional times. Anyway things came back with a vengeance, all options now cashed, retirement plans intact. Lessons learned? A little more conservative in spending. Not much else really. We are lucky. Life is good.

 

[youbet]

The key now is to preserve the wealth with letting less ride on market and bonds and take the lower returns by having more in individual TIPS.

Are you accumulating individual TIPS now? They really seem expensive. I think I saw the last ten yr issue sell at a negative real interest rate. Wow.........

 

[obgyn65]

Pretty amazing stories. Thanks for sharing, everyone.

 

[panhead]

interesting...

This was an interesting thread to read and I had to go back and look to see what it was I actually did. I got laid off in may of 2009. Before that, I looked at my vanguard account and what I was doing and then it came back to me. As always, with every check, I was investing money across my different funds, using contributions to keep things in balance. As my records show, I kept throwing cash at the funds, it kept disappearing, I kept throwing more cash at it, it kept going away. I remember now getting very dismayed at this and wondering why I was throwing good cash after bad, but I kept doing it, as we all tell ourselves, we are buying shares at a discount. After I got laid off, the markets were starting on the mend, and I had some very big family issues to deal with. This is probably the first time I went back to take a look at this time period. My vanguard account kept falling although I was throwing money at it, but nothing like the accounts I wasn't contributing to, like my old 401ks from past employers, these at one point were both down over 35%. I never lost my resolve, but remember, I had a paycheck coming in and the amounts I was dealing with, although large, aren't nearly what they are today. If it happened again today and I was working, I know I would react the same. If I was retired, I certainly wouldn't sell, but I might hunker down around my cash cushion for a year or two instead of actively buying more equities by rebalancing from my bond allocation. Dunno, if it happens when I'm retired, I'll let ya know!
Cool thread tho, since I was working it didn't affect me much, once I was laid off I just saw my balances start to increase. It's much more interesting (and educational) for me to see how the people who were retired acted thru this, especially the younger ones without a pension.....

-Pan-

PS: Oh yeah, just like some of the others have said, I am at a new all time high net worth number! Hopefully the good times will keep rolling for a while at least...

 

[Hamlet]

I was 100% equities pre-crash, and I continue to be near 100% equities. I am 39, and intend to retire at 50-55, depending on market performance and my procreative rate (I have one 11 month daughter, may possibly have one more child if all goes to plan).

My wife and I continued to buy through the dip, maxing our 401k's and Roths.

Lessons--

1. I will have a few bonds when I enter retirement. My risk tolerance is high, but I did feel a little nervous for awhile there.
2. I should have tax harvested better. I just harvested enough for a few years, when if I had been clever I could have harvested huge amounts.
3. Keep a larger emergency fund. Nothing gives peace of mind like a year's worth of expenses in the bank.

 

[NW-Bound]

I had several years of expenses in what I called cash, like I-bonds and short-term fixed income. And I still had part-time income, which covered 75 to 100% of expenses.

And I still got nervous. Not scared, but apprehensive.